ABOUT 20 percent of cigarettes sold in the Philippines are illegal, resulting in a P41 billion decline in the government’s tobacco excise tax collection in the past two years, according to the Federation of Philippine Industries (FPI).

Cigarette smuggling has drained the country of billions of pesos in tax revenue, fueled crime, harmed consumers’ health, and reduced funding for government health programs and support for tobacco farmers, the FPI said in its “Fight Illicit Trade” flyer.

The FPI said the Bureau of Customs confiscated 5,268 cases, or 53 million sticks, of smuggled cigarettes and heat sticks at the Manila International Container Port in May from Singapore. The agency also seized P4.6 billion worth of “FLAVA” vape products from warehouses in Metro Manila after the Department of Trade and Industry banned the brand in March.

Bienvenido Oplas Jr., president of Bienvenido S. Oplas Jr. Research Consultancy Services and Minimal Government Thinkers, said cigarette smuggling worsened after the government raised the tobacco excise tax to more than P50 per pack.

Citing the Laffer Curve, Oplas said higher tax rates above a certain point could lead to lower tax revenue. He said that in the case of excise tax on tobacco, it was P50 per pack.

He said tobacco revenue amounted to P176.5 billion at a tax rate of P50 per pack in 2021 but subsequently fell to P160.3 billion at a tax rate of P55 per pack in 2022 and P134.9 billion at P60 per pack in 2023.

In a newspaper column, Oplas said the government missed its tobacco tax revenue target by P49.3 billion in 2022 and by P109.2 billion in 2023.

The FPI called on Congress to also classify smuggling of industrial products as economic sabotage, after it ratified the Anti-Agricultural Economic Sabotage Act. It said smuggling of industrial products should also be a nonbailable offense.

This followed the Senate and House ratification of the bicameral conference committee report reconciling Senate Bill 2432 and House Bill 9284. Once signed by the president, the Anti-Agricultural Economic Sabotage Act will impose severe penalties on smuggling, hoarding, profiteering, cartel operations, and other unlawful acts of market abuses of agricultural products.

The FPI said smuggling of all products, including agricultural and industrial, amounts to economic sabotage because it harms the local economy and steals billions of pesos in government revenue.

“Smuggling and illicit trade are not just economic crimes. They are social menaces that erode public trust in our institutions and compromise the quality and safety of goods available to consumers and stifle the growth of legitimate business,” FPI President Jesus Montemayor said during the first National Anti-Illicit Trade Summit held at Manila Hotel on July 25.

Assistant Secretary Carlos C. Carag of the Department of Agriculture Inspectorate and Enforcement Office (DAIE) confirmed during the summit that smuggling poses a significant threat to the livelihood of farmers and fishery folk.

“Smuggled food products bypass quality control and inspection, payment of taxes, and discourage local food production. It is an unfair trade practice and should be considered economic sabotage,” Carag said.

Charlito Mendoza, undersecretary for the Department of Finance’s Revenue Operations Group, said the Bureau of Customs confiscated 204 shipments worth more than P41.5 billion in the first half of 2024. The haul included P19 billion in counterfeit goods, more than P13 billion in smuggled general merchandise, and more than P5 billion in cigarettes and tobacco products.

Paul Oliver Pacunayen, acting chief of the Bureau of Customs’ Intellectual Property Rights Division, said the agency’s top five seized commodities in the first half of 2024 were cigarettes, illegal drugs, counterfeit goods, agricultural products, and other general merchandise.